Investments in auto components industry expected to hit four-year low

Sluggish demand in the automobile market has sparked off alarm bells in the auto ancillary industry, with fresh investments in the sector projected to decline to a four-year low of less than $1 billion in 2012-13.

Vinnie Mehta, executive director, Automotive Component Manufacturers Association (ACMA), said, "There are signs of distress all over. The slowdown has sharply impacted sales of commercial vehicles, construction equipment, tractors and passenger cars. Only utility vehicles are faring well. The moderation in growth rates and high capital costs are making auto component manufacturers to reconsider investments, which is expected to be less than $ 1billion in the current financial year."

Data available with industry body ACMA show fresh investments in the sector this fiscal would be the lowest since 2008-09, when component makers had together put in around $0.1 billion. The investment planned in the auto component industry in the current year, in fact, would be at least 50 per cent lower than the $1.6 billion and $1.9 billion invested in 2011-12.

Automobile lighting systems maker Lumax Industries, for one, is reviewing investments on a case-to-case basis in the face of slowdown in the domestic industry. Anmol Jain, senior executive director, Lumax Industries, said, "For this fiscal, we had planned investments of Rs 100 crore but we are refraining from going aggressive on that. The market conditions in the domestic industry are such that we scaled down growth targets to 12-15 per cent from the initial estimates of 25-20 per cent." The company had recorded revenues of Rs 1850 crore in the last financial year.

In exports too, there are worrisome signs with overseas sales of auto component manufacturers expected to decline by a whopping 25 per cent to around $5.2 billion this year.

"Earlier Germany was going strong which had boosted overseas business of component makers. From the second quarter onward, even the market there has collapsed because of which we may now close the year with a decline of over 25 per cent in exports", Mehta informed.

Europe is the largest exports destination of auto component makers accounting for 37 per cent of overseas sales in 2011-12. Auto component exports from the country had fallen by 15 per cent to $ 3.4 billion earlier in 2009-10.

Overall, total turnover in the auto ancillary industry is expected to grow by a moderate 5-7 per cent to around $ 46 billion, from the earlier estimate of 8-10 per cent. The projections are aligned with the growth estimates outlined of 5-7 per cent for sales in the automobile industry in the country.